Chinese investors’ borrowing to trade on the country’s stock markets — the force behind their extraordinary recent performance — has surpassed 2 trillion yuan (US$322.7 billion) for the first time, figures showed yesterday, highlighting the risks in the rally.
Data from China’s two exchanges in Shanghai and Shenzhen showed the combined outstanding balance of margin trading transactions — the use of borrowed funds on the stock markets — at 2.03 trillion yuan by the end of trade on Thursday.
Under the practice, investors only deposit a small proportion of the value of their trade, generating bigger profits for a given amount of money put down — but also bigger losses.
“The growth of margin trading is making the market way too heated and risky,” Yingda Securities Co (英大證券) chief strategist Li Daxiao (李大霄) said. “Investors are borrowing money without any substantial collateral. They will face enormous risks once the market changes direction.”
The China Securities Regulatory Commission cracked down on margin trading in January, causing the Shanghai market to slump 7.7 percent, its biggest one-day fall since 2008.
However, the index resumed its rise. As of Thursday, Shanghai was up more than 40 percent so far this year, while Shenzhen had surged 91.7 percent.
Yesterday, Chinese shares were again the stand-out performers across Asia on hopes that Beijing will announce fresh monetary easing measures after more disappointing economic indicators.
In Shanghai, the composite index rose 2.83 percent, or 128.18 points, to 4,657.60 — its highest since February 2008 — on turnover of 1.01 trillion yuan. The index rose 8.1 percent over the week.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, added 1.01 percent, or 27.50 points, to 2,740.92 on turnover of 953 billion yuan. It gained 12.21 percent for the week, its best weekly performance since 2008.
The margin trading balance has doubled in just six months. It surged above 1 trillion yuan on Dec. 19 last year for the first time since March 31, 2010, when China’s market regulator first allowed the practice.
The Shanghai market was the world’s best performer among global markets last year, with a 52.87 percent jump for the year, in a borrowing-fueled rally following four years in the doldrums.
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